IRS Form 1125-E: Compensation of Officers

IRS Form 1125-E, Compensation of Officers, is a supplemental form used by corporations to provide a detailed report on the compensation paid to their officers. The purpose of this document is to create transparency for the Internal Revenue Service by providing a standardized breakdown of the corporation’s deductions for officer compensation. It is not a standalone filing but is submitted as an attachment to the corporation’s main income tax return.

Who Must File Form 1125-E

Corporations, including both C corporations that file Form 1120 and S corporations that file Form 1120-S, must complete and attach this form if their total receipts for the tax year are $500,000 or more. This rule also extends to other corporate entities, such as those filing Forms 1120-C, 1120-F, 1120-RIC, and 1120-REIT.

For this requirement, “total receipts” includes all gross receipts or sales, less returns and allowances. It also encompasses all amounts received for services, income from investments like dividends and interest, and gross rents. The calculation is made before deducting any costs or expenses.

Required Information for Each Officer

A corporation must gather specific details for each of its officers. The IRS generally defines an “officer” as a person elected or appointed to manage the corporation’s daily business affairs, with the specific definition often determined by the laws of the state where the company is incorporated.

The initial columns require basic identification: the full name of each officer and their Social Security Number (SSN). To protect privacy, the IRS permits filers to truncate the SSN, showing only the last four digits on the form.

Following identification, the form gathers information on the officer’s role and stake in the company. It requires the percentage of time the officer devoted to the business, as well as the percentage of the corporation’s common and preferred stock owned.

The final column reports the officer’s total compensation. This figure includes salary, wages, bonuses, and certain taxable fringe benefits. For S corporations, this amount must also include specific fringe benefits for officers who own more than 2% of the company’s stock.

Completing and Attaching Form 1125-E

After the information for each officer is entered, the amounts in the compensation column are totaled on the form. Form 1125-E is not filed independently; it functions as a supporting schedule that must be attached to the corporation’s primary annual income tax return. The due date for Form 1125-E is the same as the due date for the main tax form with which it is filed.